Facts and myths about Bush’s
plan for Social Security privatization
YOU ARE SO LUCKY! BY A HAIR you MISSED
GETTING SHAFTED with BUSH's "FIX FOR SSSA" the partial privatization of Social Security.The broad outlines included:
(1)
The diversion
of Social Security payroll taxes to the creation of private investment accounts;
(2)
Government borrowing to sustain current benefit
payments (which would otherwise be paid for by the payroll taxes);
and
(3)
Sharp cuts
in benefit payments for future retirees (with the claim that
income from their private accounts
will make up for it).
Bush
and the congressional Republicans (ahem! Let that read ”The LORDS OF WALL
STREET”) are selling the plan as an alternative to a fiscal
crisis which they claim will force huge cuts in benefits or huge
increases in payroll taxes when today’s young workers are
approaching retirement. What this REALLY is happens to be a BIG, FAT SUBSIDY to
the FAILIN’ STOCK MARKET! A BIG CELLULAR INJECTION of FRESH BLOOD! YOUR LIFE
BLOOD. Going to those Posh Vampire oligarchs who need an ANNUAL 20 million
dollars just to live in the STYLE to which they have become accustomed!
Various
factions of the Republican Party differ over how much of the payroll tax
should be diverted, how large the private accounts should be, and
how severely future benefits should be cut, with the Wall Street
Journal, the Cato Institute and other spokesmen for the extreme
right seeking the largest possible accounts.
In a
recent statement, Bush claimed, “The system will be in the red in13
years, and in 2042 the system will be broke.” But if a 27 percent
shortfall means the system is broke, then what of the federal government
budget?
The
federal government will run a deficit of something close to the
level cited by Bush as dangerous—not in 2042 but in 2005! (The
projected $427 billion deficit is 21 percent of a $2 trillion
budget. Add an expected $100 billion more for war in Iraq and
Afghanistan, not included in the budget, and the deficit reaches 26 percent).
Bush
blurted out the real content of his proposed “reform” at his
economic summit when he remarked: “The question is whether or not our society
has got the will necessary to adjust from a defined benefit plan
to a defined contribution plan.” In other words, for all the
rhetoric about protecting the elderly, the essence of his policy is
to shift the American population from a federal pension plan paying
guaranteed benefits to a variant of the 401(k) plans which make benefits
hostage to the ups and downs of the financial markets.
Congressional Democrats have generally opposed the Bush
plan in its current form, but a significant number have backed the
creation of private accounts through an increase in the payroll
tax or more government borrowing, an approached they have dubbed
“Social Security plus.” On the eve of the State of the Union
address, Senate Minority Leader Harry Reid (Democrat from Nevada)
announced that Senate Democrats had enough votes—40 of the 44
Democrats would be sufficient—to block any
diversion of payroll taxes into private
accounts.The Bush administration announced a political
campaign to sell the Social Security plan in which Bush would tour
at least five of the states he carried in the November election,
Florida, Arkansas, Nebraska, North Dakota, and Montana, seeking to
bring pressure on the seven Democratic senators from those states.
What is Social Security?
Social
Security was the centerpiece of Franklin Roosevelt’s New Deal
policies. Established in 1935, it is not, strictly speaking, a insurance
program, but rather provides old-age pensions based on
intergenerational transfers. Today’s retirees paid Social Security
payroll taxes during their working years, which went to fund the pension
payments for their parents. They in turn now receive pensions financed
by the payroll taxes of their children, the current generation at work.
The
program is now the foundation for the economic position of retired
workers and the disabled in the United States (disability coverage was
added after World War II). Nearly 48 million people—33 million retirees
and their dependents, 7 million survivors, usually spouses, and 8million
disabled currently receive Social Security benefits.
The
average annual benefit is $11,000, with a maximum of $23,000. The current retirement
age is 66, although reduced benefits are available at age 62. The retirement
age is scheduled to increase gradually, a few months every few
years, until it hits 67 in 2022.
Social
Security is the sole source of income for 20 percent of the
elderly, and for 38 percent of the black and Hispanic elderly. It
accounts for more than half of total income for two-thirds of the
elderly. Along with Medicare, which pays the majority of medical bills
for the elderly, Social Security is largely responsible for the sharp
reduction in poverty rates among the elderly over the past half-century.
By one calculation, without Social Security the poverty rate among
today’s elderly would rise from the present 10 percent to 50 percent.
The
Social Security system is one of the last remaining institutions in
America that works to mitigate rather than exacerbate social inequality,
welfare, AFDC having taken a death dive. Benefits are paid out on a progressive
scale, with lower-paid workers receiving a higher percentage of
their average annual wage before retirement (about 57 percent)
than higher-paid workers (the rate drops off in stages to 36
percent).
Is there
a Social Security crisis?
Not
in the sense suggested by the Bush administration, which is waging a
scare campaign about the prospective collapse or bankruptcy of the
system in order to stampede public opinion into backing its
privatization plan.
The
facts are these: under the 1935 Social Security Act, the trustees of
the system measure solvency by projecting taxes collected and benefits
paid over a 75-year period. The trustees present three projections,
based on pessimistic, middle-of-the-road and optimistic economic
assumptions, respectively.
The
middle-ground forecast is that by 2018, the system will begin to payout
more in benefits than it receives in taxes, and will be compelled to
draw on the surplus in the Social Security Trust Fund. In 2042 (2052according
to a later estimate by the Congressional Budget Office) the Trust
Fund would be exhausted, and only 70 percent of benefits would be
funded by payroll tax revenues, leaving 30 percent to be cut or funded
by other sources.
The
projection is exactly that—a very rough guess based on assumptions
of an increasingly arbitrary character, the further out into the future
the forecast attempts to reach. (One can imagine, for instance, the
problematic character of an effort to forecast conditions in the year2005
from a point 75 years earlier, at the depths of the Great
Depression in 1930).
One
of the assumptions of the projection by the Social Security trustees
is that economic growth in the United States will average 1.8 percent
throughout the period from 2015 to 2080, about half the historical rate
over the last century. Even a slightly more optimistic assumption—say,2.5
percent, a full percentage point lower than the historical
average—and the supposed “crisis” of Social Security disappears.
As for the current state of Social Security, the Trust Fund has a
surplus of over $1.5 trillion, accumulated from the wages of the baby
boom generation (1946-1965), which will begin retiring in large numbers
in 2008. The Trust Fund is ample to pay out the retirement benefits for
the baby boomers—who would be from 87 to 106 years old by the time of
the projected “crisis.” The shortfall, if any, would affect the next
generation, those under 40 today.
There
is a broader crisis facing retired workers, but that stems from
the crisis of profit system as a whole. American workers have long
depended on three sources of income in retirement: Social Security,
employer-sponsored pensions, and personal savings. Social Security, the
only one guaranteed by the state, is the only leg of this tripod that is
comparatively sound.
Because of the stagnation of wage levels and the
increasing pressure on working class living standards, personal
savings have plunged from 11percent of disposable income 20 years
ago to only 1½ percent today. Less than half of private-sector
workers have any employment-based retirementplan, and the majority
of these are 401(k) plans whose benefits are determined by the
performance of the stock and bond markets, and are not guaranteed.Traditional
defined-benefit plans cover less than 20 percent of current workers,
and collectively, they have a funding gap of $450 billion. The
Pension Benefit Guaranty Corporation, the federal agency established to
provide a safety net for these plans, has incurred a $23 billion
deficit, mainly from bailing out the steel and airline industry funds.
The Bush administration has allowed major employers to escape their
pension obligations by filing for bankruptcy, and the entire edifice of
such private plans will collapse long before any financial strains are
felt in Social Security. But the White House is sounding no alarms here,
since the default on pension plans redounds to the benefit of the giant
corporations.
Why does the Bush administration claim Social
Security is going bankrupt?
The Bush administration seeks to foment
fears of a crisis in order to privatizing part of Social Security,
ultimately eliminating the publicPension system entirely. This
campaign of fear-mongering has been widely compared, even in the
tame American media, to the methods employed in the run-up to the
invasion of Iraq, when White House spokesmen repeatedly warned of
the imminent threat of Saddam Hussein’s weapons of mass
destruction, which turned out not to exist. As in the case of
Iraq, the proposed remedy has no logical relation to the purported threat. If
Saddam Hussein had actually possessed weapons of mass destruction,
deploying hundreds of thousands of American troops within range of
those weapons would have been suicidal. In similar fashion, if
Social Security were actually running out of money, diverting as
much as $2 trillion in payroll tax revenues into private
investment accounts would make the crisis that much worse. Indeed,
that is precisely the intention of Bush’s plan to “save” Social
Security. Its principal architects are right-wing ideologues, many of
whom in the 1970s and 1980s openly advocated the program’s abolition.
Today they settled on a strategy of killing Social Security slowly and
by stealth. (A recent article in the Texas Observer recalled a
little-known episode in Bush’s past: in his unsuccessful campaign for
Congress in 1978, Bush argued that Social Security would go broke by1988
unless private accounts were established.)The special assistant to
the president charged with responsibility for selling the Social
Security “reform” plan, Charles P. Blahous, previously headed the
Alliance for Worker Retirement Security. This is the Orwellian
name of a business lobby that has long pushed privatization.
Another
longtime champion of Social Security privatization, Andrew G.
Biggs, once an analyst at the Cato Institute, is now the associate
commissioner of Social Security for retirement policy. Just before he
took that position, Biggs denounced the American Association of Retired
Persons (AARP) for “spreading disinformation” because it was pointing
out the risks of private accounts. Now in office, Biggs authored
an official policy brief that called for Social Security
Administration (SSA) personnel to become mouthpieces for Bush
administration propaganda about the impending bankruptcy of Social
Security. The document declared that SSA managers should “discuss
solvency issues at staff meetings,” and should “insert solvency messages
in all Social Security publications.”
Right-wing
spokesmen have been increasingly unguarded about their intention
of destroying Social Security, and the political significancethey
attach to it. The New York Times quoted Stephen Moore, former
president of the anti-tax Club for Growth, to this effect: “SocialSecurity
is the soft underbelly of the welfare state. If you can jab your
spear through that, you can undermine the whole welfare state.”
Grover Norquist, another right wing political operative and president of
Americans for Tax Reform, cynically dismissed the bankruptcy claim as a
pretext. “Social Security should be reformed not because the system is
going broke but because it’s a lousy program,” he declared.
Perhaps the stupidest and most economically illiterate comments came
from former House speaker Newt Gingrich, in an interview with the New
York Times. “The accounts will create the first 100 percent capitalist
society in history,” he claimed. “Fifty years from now, relatively poor
Americans for the first time will have their own personal savings;
they’ll see the power of interest buildup over time and appreciate the
importance of property.”
Such
remarks only demonstrate the self-satisfied complacency of the
privileged in a society where economic inequality has reached dimensions
not seen since the days of the robber barons. Mr. Gingrich overlooks the
fact that the essence of capitalism is the polarization of society into
two antagonistic camps: an increasingly narrow stratum of capitalist
owners, which accumulates ever-greater wealth, and the vast majority of
the population, with nothing to sell but its labor power. A few dollars,
or a few thousand, in a personal retirement account will no more
transform a worker into a capitalist than the 401(k) accounts that have
largely replaced pension plans for most working people. What would
be the effect of the private investment accounts Bush advocates?
The
two main claims of privatization proponents are that private
accounts would increase national savings, thereby boosting investment
and economic growth, and that private accounts would pay a higher rate
of return than the Social Security Trust Fund, which is invested in
Treasury notes. Both claims are bogus. Because a substantial
portion of the payroll tax would be diverted to creating private
accounts, the federal government would have to borrow the money
needed to keep making benefit payments. This borrowing is
accomplished by selling government bonds. In effect, investors would be
exchanging one set of paper—stocks purchased by the new private
accounts—for another set of paper, Treasury bills. No real new value
would be created, only profits for big investors generated by an
increase in paper values. There would be no greater pool of savings to
finance investment.
As
for the promised high rates of return—if stocks were so lucrative,
why would big capitalists and investment banks, the institutions which
would loan the trillions of dollars the government would borrow to setup
private accounts, agree to buy government bonds instead of investing
their capital in the stock market themselves?
New
York Times columnist Paul Krugman commented: “So privatizers are ineffect
asserting that politicians are smart—they know that stocks are a
much better investment than bonds—while private investors are stupid,
and will swap their valuable stocks for much less valuable government
bonds. Isn’t such an assertion very peculiar coming from people whoclaim
to trust markets?”
Krugman
lucidly explained what he called the “privatizers’ Catch-22” in a
column February 1. The projections of Social Security bankruptcy
assume an average growth rate over 75 years of 1.8 percent. But the
privatization scenarios assume that investing in stocks will yield a
much higher rate of return than government bonds, as much as 6.5 percent
after inflation. The two assumptions are incompatible, unless one is
prepared to assume that stock prices can rocket upwards indefinitely
while the real economy creeps along at a much slower pace. Krugman
writes: “The price-earnings ratio—the value of a company’s stock,
divided by its profits—is widely used to assess whether a stock is
overvalued or undervalued. Historically, that ratio averaged about14.
Today it’s about 20. Where would it have to go to yield a 6.5percent
rate of return? ... By 2050, the price-earnings ratio would have
to rise to about 70. By 2060, it would have to be more than 100. In
other words, to believe in a privatization-friendly rate of return, you
have to believe that half a century from now, the average stock will be
priced like technology stocks at the height of the Internet bubble—and
that stock prices will nonetheless keep on rising.” The White
House itself admitted that privatization has nothing to do with
solving the alleged fiscal crisis of Social Security, in a memo
drafted by Peter Wehner, a Bush political aide, which was distributed to
right-wing lobbyists in Washington and then leaked to the media. “We
simply cannot solve the Social Security problem with Personal Retirement
Accounts alone,” he wrote. “If the goal is permanent solvency and
sustainability—as we believe it should be—then Personal Retirements
Accounts, for all their virtues, are insufficient to that task.” Wehner
went on to state that significant cuts in benefits would be required.
The final element in the new accounts is, as in every significant policy
initiative of the Bush administrative, the enrichment of the American
financial oligarchy.
A
recent article in the Los Angeles Times brought to light a 1983 Cato
Institute article that advocated a “reform strategy” based on
“guerrilla warfare against both the current Social Security system and
the coalition that supports it.” It called for a propaganda campaign “to
demonstrate the weaknesses of the current system,” adding that “building
a constituency for Social Security reform requires mobilizing the
various coalitions that stand to benefit from the change.... The
business community and financial institutions, in particular, would be
an obvious element in the constituency.” According to one
authoritative estimate, the pumping of trillions and trillions of
dollars into private investment accounts will generate colossal
income to Wall Street—$940 billion in fees over the next 75years,
to say nothing of the ample opportunities for outright fraud and
swindling as hundreds of millions of inexperienced, small-scale
“investors” try to make their way through the stock exchange.
***********
BEND OVER and KISS YOUR 401K GOODBYE! There is something that NO ONE has
addressed about this plan. I believe that the government is in a
huge conspiracy to do the following: harm the unsuspecting working
person. First and foremost let me tell you after knowing the
bankruptcy laws, if a person files for bankruptcy protection
against creditors, the first thing that the IRS and the Judge asks
is do you have a 401K or any other money saved in your name? If
these unsuspecting persons fall on hard times, and file for bankruptcy, their 401k
accounts will be emptied (made payable to their creditors) and
they will find themselves dead broke at retirement age. At least with SS, our
benefits are out of the repayment LOOP. They are protected. Has anyone even
considered this? ?
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This smart article tells you that you MISSED having
your POCKET PICKED by BUSH et cie by a hair! But be sure of this, they WILL BE
BACK, with justifications for taking your money. How it will be good for you.
How you’ll make money. CAVEAT EMPTOR
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